Brexit: Implications for the Movement of Goods

Brexit creates uncertainty over many aspects, including the future of the trade relationship between the European Union and the United Kingdom. The Republic of Ireland is the only country within the European Union that shares a land border with the United Kingdom, and has supply chain and logistics patterns that are interlinked to the United Kingdom’s. These patterns and Ireland’s infrastructure must prepare for the effects of a post-Brexit trade deal to avoid supply disruptions should the UK officially exit the EU next year. By Lilita Zelca.

Current Trade Patterns

The economies of the Republic of Ireland and The United Kingdom (Northern Ireland in particular) are deeply interdependent, with significant cross-border trade, transit routes, international trade patterns and industries operating on an all-island basis.

The United Kingdom is Ireland’s second biggest trade partner, after the EU as a whole. In 2016 almost 13% of the total Irish exports were destined for the United Kingdom, and these exports have gradually increased over the past four years. Any trade restrictions such as border control and import tariffs put in place after Brexit could increase the transportation time and total operating costs.

The UK is not only an important trade partner, but also serves a major role in shaping the logistics patterns of the island of Ireland. There are three main trade and transport flows that are particularly important for the Republic of Ireland – trade and transportation within the island of Ireland, trade and transport flow from the Republic of Ireland to Great Britain, and transportation to and from mainland Europe, via the UK land-bridge.

On the island of Ireland, supply chains are highly integrated, often crossing the border several times for production and value added activity purposes before reaching the final customer. If the hard border was re-introduced as a result of Brexit, the transportation and distribution patterns could be re-designed to avoid the time consuming border crossing procedures. This could lead to longer lead times, less frequent deliveries, and the facilities located on one side of the border being ‘stranded to the market’ on the other side.

Approximately 80% percent of Ireland’s road freight to Europe goes through the British mainland. In the border-free European Union, lorries are freely using the roll-on, roll-off ferries to transport goods to and from mainland Europe. If the UK leave the single market and the EU Customs Union, all goods trade and transit with the EU will be subject to border control, and customs clearance. As it currently stands, the Irish lorries would have to go through the customs clearance procedures twice – when entering the UK, and when reentering the EU.

Brexit Scenarios and Impacts on the Irish Trade

One of two Brexit scenarios may be recognised:

• A soft Brexit, where the United Kingdom remains a member of the EEA or the European Customs Union; and

• A hard Brexit, where the UK leaves both the single market and the European Customs Union, and opts to negotiate a Free Trade Agreement (FTA) with the European Union, trading on World Trade Organisation (WTO) Most Favoured Nation (MFN) terms in the interim.

The soft Brexit scenario would have the least impact on the current Irish trade and logistics patterns, however, it has been ruled out as the UK insists on regulating the movement of people, and not making financial contributions to the European Union.

Hard Brexit, as it currently stands, will re-design the Irish logistics and supply chain patterns. In the absence of a transitional deal covering EU-UK relations to bridge the gap between the end of Brexit negotiations and the FTA implementation, the bilateral trade between the EU and the UK will be subject to numerous tariff and non-tariff barriers.

If the trade reverts to WTO terms, EU most favoured nation tariffs would be applied for products exported from the EU to the UK and vice-versa. Tariffs vary per product group and classification; for example, the tariffs on fruit, vegetables and animal products depend on whether or not they can be harvested locally, and the quality certifications of the importer.

As a result of hard Brexit, border control will be put in place on the Irish and Northern Irish land border, and customs controls will be required for all bilateral trade. Also, all trade between the European Union and countries outside the European Customs Union require the complete Customs Clearance process.

This would create an additional bureaucratic burden for all the EU companies trading with the UK as the minimum EU documents required for the customs clearance process would have to be present. Before trading with countries outside the EU, such as the UK post-Brexit, an Economic Operator Registration and Identification (EORI) number needs to be attained. This enables the trading entity to uniquely identify itself in whatever customs activity it undertakes or plans to be involved in. Businesses also need to apply for Authorised Economic Operator status (AEOS) for trading security and safety.

While the customs checks can be minimised, they cannot be eliminated entirely. Though technological solutions and cross-border cooperation can significantly reduce the effects of a hard border, some physical checks will be required on all external borders of the EU. There have been repeated references to introducing seamless borders to facilitate trade, however, no information has been published to date to demonstrate how this will work or to establish if it is in fact a realistic option immediately post-Brexit.

Post Brexit Challenges and Opportunities for the Irish Trade

There are several issues that have to be tackled to ensure seamless logistics and transport operations in the post-Brexit trade:

Guidelines on Import/Export documents: As the documents required for customs clearance procedures may vary, the Irish authorities should develop clear guidelines for SMEs on the documentation needed in numerous trade scenarios (export scenario, import/export for value added activities, transit).

Driving Time: Transport and logistics companies may need to consider changes to current logistics patterns to optimise driving time. New approaches and exceptions to the EU driving time requirements (such as breaks on the border/ during customs clearance) may need to be considered to optimise the transport activities, particularly for journeys using the land-bridge through Britain.

Training for customs clearance experts: A number of trade experts have to be trained to carry out customs clearance procedures for the post-Brexit volume.

Training for drivers: To ensure frictionless customs clearance processes, the drivers should receive training in order to recognise potential issues in a timely manner. Training for transport and logistics professionals: Employees of logistics and transport companies need to receive training to prepare for post-Brexit customs and administrative procedures.

IT system capacity: The capacity of the IT system handling customs imports and exports would need to be reviewed and possibly improved to handle the increasing amount of customs declarations that will need to be filled as a result of the changed requirements post-Brexit.

Additional goods storage: This would be required for goods waiting for clearance and inspection processes in sea ports and airports.

Waiting / cargo inspection space: Facilities where the documentation and cargo can be inspected need to be in place before the hard border becomes a reality. This may also require chilled storage spaces for goods with special storage / handling requirements.

Brexit may be negatively influencing Irish trade and logistics; however, Brexit can provide a unique opportunity for the Irish exporters to increase export levels to the European Union and create lean transportation routes with mainland Europe.

It is certain that some kind of a border control will have to be put in place as a result of a hard Brexit. The enhanced level of border control will result in time and cost increases for the transportation and logistics sector, and, therefore, it might become more profitable for many to shift from using the UK land bridge to using direct shipping routes for Ireland’s trade with mainland Europe.

However, currently the direct shipment opportunities between Ireland and mainland Europe are underutilised. The direct shipment routes with mainland Europe, Benelux countries in particular, require a feasibility study to evaluate the infrastructure capacity, legacy, shipping routes and schedules. This change would require major reorientation in services and possible switch in shipping mode from RoRo to LoLo.

If the modal shift from the road to sea happen, initial investment and further research is required to accommodate the change of logistical patterns:

-Assessment of the current Irish road and sea port infrastructure is required to determine the possible post- Brexit bottlenecks. There may be major infrastructure investments required to accommodate post-Brexit trade. On the land border, there may be a need for additional waiting and inspection areas, possible modifications, and improvements of IT systems.

It is highly unlikely that any major capital investments will be made in the transport infrastructure before the EU and the UK post-Brexit trade deal is closed. However, adequate planning and risk assessment can help the Irish private and public sectors to avoid major supply chain disruptions.

-Currently there are a lack of established sea routes that could accommodate direct trade with mainland Europe. Though the direct shipping routes could be both time and cost effective post-Brexit, there is currently no in-depth research that can confirm this. Detailed cost and time comparisons between various transit routes with mainland Europe could increase the private sector interest in using direct shipping routes, and reduce the overall logistics costs.

-Increased direct shipping volumes with mainland Europe could require major reorientation in services and initial infrastructure investment. Further analysis is required to assess the infrastructural ability to accommodate the switch from road to direct shipping routes.

Because of their historical connections, Ireland and the UK have similar tastes in products and common brand awareness. In post-Brexit Europe, products imported from the UK will face additional tariffs and, therefore, will become significantly more expensive compared to the EU products. This may provide an opportunity for Irish exporters to replace British products with European ones. The Irish Government and Enterprise Ireland have created a Brexit SME Scorecard; the use of the assessment tool is free of charge and is specially designed for Irish companies to prepare for the post-Brexit market.

Brexit causes uncertainty over Ireland’s post-Brexit trade and logistics patterns. Though the possible change carries several risks, including the probable increase of operational costs, Brexit also offers an opportunity for the Irish trade and supply chain to improve the direct relationship with the European markets and supply chains.

Lilita Zelca is a logistics and supplychain expert with field experiencein Ireland, The Netherlands andHong Kong. Lilita currently worksin IT strategic sourcing where shelooks to optimise business andsupply chain processes viastrategic procurement andallocation of IT resources.